reversal Archives - The Automatic Earth

Will 2018 be the year the stock market rally screeches to a halt? It may be, if those analysts who are cautioning that a bubble is forming in credit markets are right and companies are overextending themselves to a degree that could spell trouble ahead. Most analysts agree that the credit market has been speeding ahead at a bubble-like pace. Companies have been piling on debt in recent years to take advantage of low interest rates, or more recently, to get ahead of a series of well-telegraphed interest-rate hikes. If their borrowing is simply to refinance existing debt at lower interest rates, it’s a positive for balance sheets. But many companies have borrowed to raise funds for shareholder rewards, and that may come back to bite them if rates were to spike.

For example, Apple debt may be highly rated, just two notches below triple-A at AA+ at S&P Global Ratings, but the technology giant continues to ride the borrowing bandwagon as it looks to fund its massive share buyback program. Apple issued $7 billion of debt in November, two months after selling $5 billion worth of corporate bonds and several months after adding more debt. The U.S. primary corporate bond market is currently at record levels. The investment-grade market saw $1.44 trillion of issuance in 2,127 deals through December 26, topping the record $1.34 trillion recorded in 2016, according to data analytics company Dealogic. The high-yield market has chalked up $266.3 billion of debt in 469 deals, making it the fourth-biggest year for issuance, according to Dealogic. The high-yield record goes to 2012 when issuers sold $321 billion of debt in 604 deals.

Combined investment-grade, high-yield and FIG issuance—FIG is financial institutions group—is a record $1.71 trillion, topping the previous record of $1.57 billion set in 2015. What’s starting to worry some analysts is that despite the fact that the Federal Reserve and other central banks are draining liquidity from the marketplace and the yield curve is flattening, near-record credit market valuations suggest investors haven’t prepared for any potential speed bumps. One sign of this complacency, is how narrow the spread is between yields on speculative grade, or “junk” bonds, and corresponding risk-free Treasury notes. S&P Global Ratings said Tuesday its speculative-grade composite spread tightened by three basis points (0.03 percentage points) to 399 basis points, well below the five-year moving average of a 528 basis-point spread.

How much longer can volatility remain ultra low?

• Dramatic Stock Market Reversal Signals More Volatility Ahead (CNBC)

After a mostly one-way trade higher for weeks, Tuesdays’ dramatic stock market reversal signals the potential for more choppy trading ahead. The Dow rocketed 283 points Tuesday, before erasing those gains and heading down 100 points. It later recovered and closed just 10 points lower at 25,792 after its most volatile day since Dec. 1 and on the first day it traded above 26,000. Traders blamed Washington for some of the selling as lawmakers appeared to be having difficulty agreeing to a spending resolution and on reports that former White House advisor Steve Bannon will testify in the Russia investigation. But while the focus was on Washington, traders also looked at the morning market surge Tuesday as another sign that the market was getting too frothy and overbought.

“The healthiest thing would be some downward action for the next two or three sessions. Today you did have a somewhat bearish, outside reversal,” said Scott Redler, partner with T3Live.com, who follows the market’s short-term technicals. A reversal is when the market opens above a prior high and then closes below a prior low. “That happened in some sectors like small-caps. … You can’t get too bearish if you’re still above the 8- and 21-day moving average,” Redler said. Strategist Laszlo Birinyi on Tuesday said he expects a possible six weeks of consolidation and sideways trade, but he is not bearish on stocks. “Right now, the market is at the upper end of the trading range. It’s 5% over its 50-day moving average, and those are areas where the market tends to digest, consolidate, take a breather but not go down,” he said, as the market gyrated Tuesday.

Steve Massocca, managing director at Wedbush Securities, said the market has clearly become fatigued after its sharp move higher. The S&P 500 is up 4% since the beginning of the year and crossed above 2,800 for the first time Tuesday before closing down 9 at 2,776. “We’ve had a pretty significant move. It’s quite natural that this would be exhausted at some point. … A potential government shutdown is a handy excuse,” he said. But a government shutdown Friday is not likely, said Dan Clifton, head of policy research for Strategas. “My overall view on this is they’re preparing a temporary stop-gap measure. I just don’t think we’re going to shut down, but we’re trying to buy time until there could be a larger spending package. It was very much companies that were influenced by government spending that were selling off. The market is saying there is some risk of a government shutdown,” Clifton said.

Closing in on $10,000 as we speak. Is that a psychological barrier?

• Bitcoin, Ethereum Suffer Massive Drops, Many Crypto’s Fare Even Worse (CNBC)

Most major digital currencies sold off sharply on Tuesday, but the declines in bitcoin, ethereum and litecoin prices weren’t as bad as much of the rest of the market. All of the top 20 digital currencies — by market value — suffered double digit losses over the last 24 hours, according to data from industry website CoinMarketCap. For example, ripple was down 26%, bitcoin cash was down 24%, iota was down 27% and monero was down 22% as of 8:51 a.m. HK/SIN. In fact, at their low point on the day, many cryptocurrencies with large market caps saw their prices essentially halved. On the other hand, bitcoin was down 17% at that time, ethereum was down 19% and litecoin was down 19%, according to the same site.

The declines followed speculation in the market about what regulators in Asia may be planning for digital tokens. On Monday, a report from Bloomberg, citing unnamed sources, said Beijing plans to block domestic access to Chinese and offshore cryptocurrency platforms that allow centralized trading. Last week, South Korean Justice Minister Park Sang-ki said his ministry was preparing a bill that, if passed, could ban trading via cryptocurrency exchanges. His comments roiled the market and subsequently the justice ministry and other sections of South Korea’s government have softened their stance.

Just perfect.

• South Koreans Sign Petition To Stop Crackdown On Bitcoin ‘Happy Dream’ (CNBC)

A petition in South Korea against cryptocurrency regulation has reached the number of signatures that would induce a government response. As of Tuesday morning, ET, more than 212,700 had signed a petition launched Dec. 28 on the website of the South Korean presidential office. A Google translation of the website states that if more than 200,000 people support a petition within 30 days, officials will respond. “Our people have been able to make a happy dream that they have never had in Korea because of virtual money,” the anonymous author of the petition wrote, according to a Google translation. “People are not stupid. … virtual money is invested because it is judged to be the fourth revolution.” The petition did support South Korea’s recent actions on cryptocurrencies, such as banning anonymous trading accounts.

“However, I wish that the economy will not decline due to unjustifiable regulations in the present situation,” the Google translation of the petition said. Unemployment among South Korean youth, or those ages 15 to 29, is around 9%, nearly three times the national average, according to Statistics Korea. Young people are generally more interested in buying and selling digital currencies than their elders. In the last several months, South Korea has accounted for a significant portion of the trading volume in digital currencies such as bitcoin, ethereum and ripple. Earlier this month, ripple prices appeared to plunge in U.S. dollar terms after CoinMarketCap said it was excluding price information from some Korean exchanges due to “extreme divergences in price from the rest of the world.”

No kidding.

• ‘Black Swan’ Event Could Threaten China’s Financial Stability (R.)

China’s banking regulator chief warned that a “black swan,” or an unforeseen event could threaten the country’s financial stability, official People’s Daily reported on Wednesday. In an interview with the paper, Guo Shuqing said that while risks in the financial system are manageable, they are still “complex and serious.” Since his appointment as the head of the China Banking Regulatory Commission early last year, Guo has introduced a flurry of new rules to reign in lender risks including from curbs on shadow banking activities to the crackdown on loan fraud. Guo said the dangers stem from the pressure of rising bad debt, imperfect internal risk systems at financial institutions, the relatively high levels of shadow banking activities and rule violations.

All of these risks could upend financial stability through a “black swan” event, Guo told the People’s Daily, referring to major, unexpected occurrences. “We need to focus on reducing the debt ratio of companies, restrict household leverage, strictly control cross-financial sector products, continue to dismantle shadow banking,” said Guo. China will step up oversight of the banking sector this year to reduce financial risks, the CBRC said on Monday, stressing that long-term efforts would be needed to control banking sector chaos.

A trade war wouldn’t qualify as a black swan.

• US and China Brace For Trade War That Could Rattle Global Economy (ZH/WSJ)

Once under way, the repercussions of a trade war would be felt well beyond the combatants themselves. US friends and allies along Asian supply chains would be early collateral damage. China is still to a large extent the final assembly point for imported high-tech components from Japan, South Korea and Taiwan. Navigating increasingly complex global supply chains in a constant state of disruption would be hugely problematic for businesses across industries. Furthermore, if it escalated far enough, a trade war could take down the entire global trading architecture. That could be Trump’s goal. Many in his administration, including trade representative Robert Lightizer, believe the biggest mistake the US ever made was to usher China into the World Trade Organization in 2001. Aides say Trump regularly threatens to pull out of the rules-setting body.

Trump has in the past suggested that Chinese help on North Korea could head off US trade action. In a phone call with the US president on Tuesday, Xi suggested that trade issues should be resolved by “making the cake of cooperation bigger.” Meanwhile, Trump expressed disappointment that the US trade deficit with China has continued to grow” and made clear that “the situation is not sustainable.” In private, however, senior Chinese officials believe Beijing has many tactical advantages: Some are cultural – the Chinese people, one says, are more prepared to endure economic hardship. [..] Many US trade experts don’t mince words: They believe China would prevail in a trade war with the US, and that the US economy would suffer lasting damage.

Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics, thinks China would win. Among his reasons: China’s ability to concentrate pain, and the outcry from affected businesses in America’s more open political system. He argues that “the political costs to the Trump administration of maintaining new protectionist measures will be much higher than the costs of retaliation to the Xi regime.” Derek Scissors, a trade expert at the American Enterprise Institute argues that the major US advantage is that China is far more dependent on trade for its financial health. “A shorter, smaller-scale trade conflict favors China due to its comparative agility,” he says. “The more serious it gets, the worse China would fare because it’s badly outmatched monetarily.”

Part of a podcast with America’s no.1 Russia scholar Stephen Cohen at TFMetalsReport.com.

• The New Cold War In 2018 (Stephen Cohen)

I’m not a Trump supporter and I didn’t vote for him. However, we can actually support Donald Trump’s campaign promise which I think he’s tried to act on since he’s been president that it’s necessary to cooperate with Russia. This is what was called detente in the 20th century. I don’t know why Trump doesn’t make this point. I don’t think he has very good advisors in regard to Russia either in terms of what’s going on in Russia or in terms of his own policy making but Trump might say in his own defense because they’re indicting him for simply saying I want to cooperate with Russia and with Putin in particular. He could say look, every Republican president of consequence in the 20th century pursued detente with Russia.

First Eisenhower, the first detente the spirit of Camp David with Khrushchev, then the Nixon Kissinger attempt at a grand detente with Brezhnev and finally above all Ronald Reagan a detente with Gorbachev the last Soviet leader Soviet Russian leader so great that Reagan and Gorbachev ended the cold war. Trump could put himself in that tradition and say “I’m the traditional Republican. This is what Eisenhower, Nixon and Reagan did. They did it wisely. They avoided nuclear war with Russia. We’re in a new Cold War. The dangers are grave. It’s not only my duty as the American president to pursue cooperation to ward off a catastrophe but I commend the honorable tradition of the Republican Party”. He doesn’t say that. I don’t know why as I say it because he doesn’t know what or because he wants to be the one and only I have no idea what he needs to say.

And if he said it it would compel a conversation in Washington that we’re not having. What’s happened to detente and what’s happened is we have if we ignore his own idiom and put it in again I speak as a story in the historical language of 20th century diplomacy. We have a pro-detente President who for the first time in history is not permitted to at least try because every time he has a sensible conversation with Putin, no matter whether it’s face to face or on the telephone, he’s accused not only by the traditionally crazies in American politics but by the New York Times of treason. So what we could do and it will be hard for a lot of people because of the loathing for Trump. Is so pervasive just and I didn’t vote for Trump is the fifth amendment I didn’t vote for Trump and I didn’t support President Trump. But about this he is not only right. He’s our only hope at the moment.

Caitlin Johnstone is a delight to read. Summary here: Putin is supposed to have paid out many billions when no-one believed Trump was a viable candidate. Was he psychic?

• The One Fact Which Disproves Russiagate (CJ)

Just a few days ago Russiagaters were having yet another “BOOM! We got him!” social media parade about an article from the Clinton-directed Daily Beast, claiming that a senior national security aide within the Trump administration had suggested scaling down the US troop presence along Russia’s border, a dangerous escalation which all peace advocates support eliminating. In the first sentence of the article’s second paragraph, the author Spencer Ackerman acknowledges that “the proposal was ultimately not adopted.” Huh? So President Trump, alleged to have been groomed early and at great expense by the Kremlin in anticipation of a presidential victory nobody else imagined possible at that time, was pitched a recommendation to scale down new cold war escalations with Russia… and he refused? That’s how you’re starting your article about the “return on Russia’s election-time investment in President Trump”?

Russiagate is so weird. You need to plug yourself into Louise Mensch and Rachel Maddow ramblings so extensively that you can contort your sense of reason to the point where it looks perfectly rational to believe that Putin was omniscient enough to know that Trump could defeat all primary opponents and take the fight to the heir apparent Hillary Clinton back when virtually no one else imagined such a thing was possible, recruited his team reportedly at the cost of billions of dollars, poured all kinds of intel and resources into ensuring Trump’s election using hackers and bots to influence American opinion, only to get a US president who is, when it comes to facts in evidence, already just a year into his administration demonstrably more hawkish towards Russia than his predecessor was. Again: huh?

Nobody wants to think about this because it doesn’t fit in with America’s stale partisan models; Democrats would have to admit that their best shot at getting a rival president impeached is pure gibberish, and Trump supporters would have to acknowledge that their swamp-draining populist hero is actually just one more corrupt globalist neocon like his predecessors.

The next Carillion is already in sight: Interserve. The British privatization model is failing spectacularly. That will cost a lot of jobs.

• Carillion’s Failure: The Many Questions That Need Answers (Coppola)

Britain is reeling from the shock collapse of one of its largest corporations, the giant construction and services company Carillion Group plc. In talks over the weekend, Carillion’s management was unable to persuade its lenders to provide any more funds, and the U.K. government refused to help. Carillion was left with no options. On Monday morning, Carillion filed for compulsory liquidation. This was a completely unexpected move. Discussions about Carillion’s fate over the previous week had centered around restructuring, bail-in of creditors and perhaps placing the company into administration, the U.K.’s equivalent of Chapter 11 bankruptcy protection. No one expected the company to be wound up. But that is what will now happen to it.

As Carillion has extensive U.K. Government construction and services contracts, the U.K.’s High Court appointed the Government’s Official Receiver to manage the liquidation. Among other things, the Official Receiver will be responsible for ensuring that public sector services currently provided by Carillion continue to run, and the staff providing them continue to be paid. Without this assurance, meals to hospital patients and schoolchildren might not be delivered, and prisons might not be staffed. But the future of Carillion’s 19,000 employees in the U.K. (43,000 worldwide) is still highly uncertain. Staff working on U.K. public sector service contracts are protected for the moment, but those working on other projects could lose their jobs within days.

The Official Receiver will be supported by six insolvency specialists from the accountancy firm PWC, who will act as “special managers”. PWC’s message to Carillion’s shareholders was blunt and immediate: Unfortunately, as a result of the liquidation appointments, there is no prospect of any return to shareholders. At least shareholders know where they stand. They have been wiped. Trading in Carillion’s shares has been suspended, of course.

I see trouble in your future.

• After Carillion How Many Firms Can UK Pensions Lifeboat Rescue? (G.)

The pensions lifeboat that comes to the rescue when firms go bust is about to get a lot more crowded following the collapse of Carillion. The sprawling construction and outsourcing firm had a pension deficit of £580m but is now likely to rise to at least £800m because it no longer has a solvent business standing alongside it. The company’s crash into liquidation has thrown the spotlight on other firms with huge pension scheme deficits such as IAG, BT and BAE. It has also raised questions about how many more big company failures the Pension Protection Fund (PPF) can absorb, and why companies with big deficits are allowed to pump out bumper dividend payouts to shareholders.

It is almost certain that the fund will now have to step in and bail out workers at Carillion, which has more than 28,000 defined-benefit – in this case, final salary – pension scheme members. Those already taking pensions will be protected, but those members below retirement age will face cuts of 10-20% because there is a cap on payouts to higher earners. It’s been a busy time for the PPF: in the spring, roughly 20,000 members of the British Steel pension scheme will start moving into the fund. They will eventually be joined by about 2,000 former BHS workers (the vast majority of the retailer’s staff chose to move their retirement funds into a new pension scheme).

Carillion’s liquidation has fuelled concern about the financial stability of other big companies. Last year a report by JLT Employee Benefits put the total deficit in FTSE 100 pension schemes at the end of 2016 at £87bn – £17bn worse than a year earlier, even though firms paid in around £11bn. 66 companies had deficits – ie their liabilities to pension scheme members were greater than their assets. Booming stock markets in 2017 helped narrow the gap. Mercer, the leading pensions consultancy, said deficits at the biggest 350 firms fell to £76bn from £84bn the year before. But even with the FTSE at a new peak, the deficits remain alarmingly high.

Pensions, Social Security, it’s all stupidly overpromised. And that will remain so until it’s too late.

• No Way Around Sorry Shape Social Security Is In (Newsmax)

If you want to know what makes people worry, here are four facts to make you lose your sleep whatever your age:

1. The Social Security Shortfall Is Growing Three Times Faster Than the US Economy. The imbalance of Social Security is measured by its shortfall, or the amount of money, that with interest earned, would enable the program to pay benefits over the next 75 years. That hole in the program’s finances is growing at three times the rate of our ability to fill it. Here are the numbers. Over the past 15 years, the system’s liabilities have grown at 9.6% compounded annually, while the trustees expect that even in a robust year real economic growth will not break 3%. Moreover, the trustees believe that the long-term growth rate of the economy is 2.1%. At the end of 2001, the Social Security shortfall was $3.157 trillion. At the end of 2016, it was $12.5 trillion. With the passage of yet another year of inaction on the program’s finances, the figure is more than $13 trillion.

2. People Turning 70 Today expect to Be Alive When Benefits are Reduced. If you think the problems of Social Security are limited to people under the age of 40 —think again. That assessment has not been a realistic concern in nearly two decades. The Social Security Administration believes that more than half of the people turning 70 today will be alive and well when the trust fund is exhausted. The exhaustion of the trust fund means that benefits will be reduced to the level of revenue collected. At this point, the trustees of the Social Security Trust Funds believe that benefits will fall by 23% in 2034, with cuts rising over time. The CBO believes that the reductions will rise to 30% over time.

3. In 2016, the Program Lost More Money than It Collected. Over the course of 2016, the program’s unfunded liabilities rose by nearly $1.2 trillion. That is a breathtaking jump considering that the program only collected about $950 billion in revenue. Mechanically, Social Security takes in money in exchange for the promise of future benefits. In the case of 2016, for every $1 that the program took in, the system generated more than $1.20 of promises that no one expects it to keep. In English, we could have reduced benefits to zero for the entire year of 2016, and the program would have finished the year in worse shape than it started.

4. Dependency on Social Security Rises with Age. Typically, worriers about Social Security say that Social Security accounts for 90% of the income of more than one-third of seniors. Politifact has largely confirmed this statistic.

It’s a zombie nation.

• Britain Is Being Stalked By A Zombie Elite (G.)

Britain in 2018 is stalked by zombie ideas, zombie politicians, zombie institutions – stripped of credibility and authority, yet somehow still presiding over our lives. Nowhere is this more true than in the way we run our economy. This September marks the 10th anniversary of the death of Lehman Brothers. In autumn 2008, the banks broke, the governments stepped in – and the cast-iron premises that underpin our economic system were exposed as fiction for all to see on the Ten O’Clock News. Yet a decade later, those dead ideas still walk among us. They form what John Quiggin at the University of Queensland terms zombie economics – dogmas now cracked beyond repair, but which continue to shape British society.

Austerity – the policy that more than any other will define this decade – was lifted by George Osborne straight out of Margaret Thatcher’s handbag. He justified it with zombie rhetoric about how business was being “crowded out” by childcare centres and the rest of the public sector, and how 21st-century sovereign countries could be run just like household budgets. Tax cuts for “wealth creators” and privatisations of the few remaining national assets: all utter zombie-ism. And this was no one-party game. Labour frontbenchers from Andy Burnham to Chuka Umunna spent the first half of this decade pleading guilty to the trumped-up charge of creating a debt crisis.

Labour councils are among those pursuing outrageous privatisations. And over the past four decades both sides have adopted as an article of faith the idea that politics is about What Works – and that What Works is a mix of Potemkin markets and crude managerialism. From Tony Blair to David Cameron and Nick Clegg, politics was no longer about left battling right – but technocrats and open-necked Oxford philosophy, politics and economics graduate special advisers who “got it” versus the dinosaurs and well-meaning naifs. In this way, a broken economy has been force-fed more of the same ideas that helped to break it. The outcome has been almost predictably dire.

Yeah, let’s get Greece to pay up for that. Show us some solidarity!

• Dutch Say Nations Hit By Brexit Shouldn’t Plug EU Budget Hole (BBG)

Dutch Finance Minister Wopke Hoekstra said European Union countries that are set to suffer the most from Brexit shouldn’t also have to help plug the hole it will tear in the bloc’s budget. “A small group of countries on the west coast of Europe is hit very hard in the economy by Brexit, which applies primarily to Ireland, but also to the Netherlands, Denmark, Spain and a number of other countries,” Hoekstra said in interview with Dutch TV station RTL Z. “It cannot be the intention that those who already experience the damage of Brexit will also pay the bill.” While the remaining 27 EU countries are maintaining a united front in Brexit talks, national interests diverge when it comes to the future trading relationship and splits are starting to emerge.

The Netherlands is one of the EU countries keenest on securing a trade deal with the U.K. that doesn’t harm crucial commercial trade ties between the two countries, whose ports face each other across the North Sea. Hoekstra met his Spanish counterpart Luis de Guindos last week and the pair agreed they both wanted a Brexit deal that keeps the U.K. as close to the EU as possible, according to a person familiar with the situation. A Spanish economy ministry official said last week the two finance chiefs had underlined the importance of U.K. ties for both countries, and agreed to keep track of their common interests. The U.K. will continue to pay into the current budget until the end of 2020; after that a new seven-year budget cycle comes into effect. The U.K. is a net contributor to the current budget, which redistributes funds across the bloc.

The real collusion.

• Nomi Prins’ New Book: Central Banks Have Become the Markets (Martens)

Nomi Prins’ latest book, Collusion: How Central Bankers Rigged the World, ensures her place as one of this century’s most informed Wall Street historians. It’s the perfect segue from Prins’ earlier “It Takes a Pillage,” and her 2014 book All the Presidents’ Bankers. If you are serious about understanding the corrupting influences that have left the U.S. vulnerable to another epic financial crash, buy all three books and read them as one. Prins is a veteran of Wall Street who has now written six books and dozens of articles to help Americans navigate the snake pit that has replaced the financial system of the United States. It all started with her first book in 2004, Other People’s Money: The Corporate Mugging of America, where she explained her motivation as follows:

“When I left Wall Street, at the height of a wave of scandals uncovering scores of massively destructive deceptions, my choice was based on a very personal sense of right and wrong…So, when people who didn’t know me very well asked me why I left the banking industry after a fifteen-year climb up the corporate ladder, I answered, ‘Goldman Sachs.’ “For it was not until I reached the inner sanctum of this autocratic and hypocritical organization – one too conceited to have its name or logo visible from the sidewalk of its 85 Broad Street headquarters [now relocated to 200 West Street] that I realized I had to get out…The fact that my decision coincided with corporate malfeasance of epic proportions made me realize that it was far more important to use my knowledge to be part of the solution than to continue being part of the problem.”

In Collusion, Prins walks us through the critically-important events occurring during the 2007-2009 financial crash, many of which would have been relegated to the dust bin of history if not for this book. Prins makes the case that the U.S. is headed toward another epic financial crash as a result of the unchecked powers of the U.S. central bank (the Federal Reserve) and its global counterparts who are creating dangerous new asset bubbles in an effort to paper over the last ones. Prins convincingly shows that colluding central bankers have effectively become the markets through a never-ending flow of cheap money to the mega banks which have deployed that cheap money to buy back and inflate their own stock – with a green light from their own regulator and money pimp (our term, not hers) – the U.S. Federal Reserve.

The new PM should jump on this. She cannot afford to let this stand.

• New Zealand Fisheries Want Images Of Dead Penguins Caught In Nets Censored (G.)

The seafood industry in New Zealand has asked the government to withhold graphic video of dead sea life caught in trawler nets as they are potentially damaging to fisheries and to brand New Zealand. A letter from five seafood industry leaders to the Ministry of Primary Industries highlights the fisheries’ growing unease with the government’s proposal to install video cameras on all commercial fishing vessels to monitor bycatch of other species and illegal fish dumping. The letter requests an amendment to the Fisheries Act, so video captured onboard cannot be released to the general public through a freedom of information request, frequently used by the media, campaign groups and opposition parties.

“They [the proposed videos] also raise significant risks for MPI and for ‘New Zealand Inc'”, the letter reads, also citing concerns about invading the privacy of employees onboard, and protecting commercial and trade secrets. There are no reliable figures on the numbers of penguins, sea lions, dolphins and seals that die in fishing nets or longlines in New Zealand, but according to some researchers and environmental groups the commercial fishing industry is the main culprit for declining populations of endangered sea lions and yellow-eyed penguins. Only 25% of deepwater trawlers in New Zealand have government observers onboard to record bycatch and discards, according to the National Institute of Water and Atmospheric Research [Niwa], which relies on statistical modelling techniques to generate bycatch estimates for the 75% of boats that work unobserved.

Niwa estimates for every kilogram of reported target catch (what the fishing boat aims to catch ) there is 0.2 kg of bycatch. “These are the images the fishing industry doesn’t want you to see”, said Forest & Bird’s chief executive Kevin Hague. “What they [the seafood industry] are saying is catching endangered penguins, dumping entire hauls of fish overboard and killing Hector s dolphins looks really bad on TV. Well, the solution is to stop doing it, not to hide the evidence. It’s hard to think of a more credibility damaging activity than trying to change the law so the rest of us can’t see what’s really happening out there.” Deepwater fishing vessels account for 80% of New Zealand’s annual catch and earn NZ$650m per annum in export dollars.

Debt Rattle November 8 2017

Nov 082017

November 8, 2017 Posted by Raúl Ilargi Meijer at 9:56 am Finance Tagged with: arms sales, Catalonia, corruption, crackdown, homeless, Lebanon, malls, MMT, reversal, Saudi 4 Responses »

Henri Cartier Bresson Nehru Announces Gandhi’s Death, Birla House, Delhi, India Jan 30, 1948

• 700 Years of Data Forewarn of Rapid Reversal From Low Interest Rates (BBG)

• Saudi Banks Freeze More Than 1,200 Bank Accounts in Anti-Corruption Purge (R.)

• Saudi Crackdown to Confiscate Up to $800 Billion in Assets (WSJ)

• Leaked Secret Israeli Cable Confirms Israeli-Saudi Coordination In Lebanon (ZH)

• Lebanon – The Next Front In The Great Gas War (Golem XIV)

• UK Sales Of Bombs And Missiles To Saudi Arabia Increase By Almost 500% (Ind.)

• May to Lose Second Top Minister in One Week Over Secret Israel Meetings (BBG)

• Those Who Broke The Economy Cannot Fix It (Ann Pettifor)

• German ‘Wise Men’ Sound Alarm Over ‘Overheating’ Economy (R.)

• Bean Counters: Lost in Paradise (Ren.)

• British Mainstream Media Spreading Dangerous MMT Ideas (Bilbo)

• Brick-and-Mortar Meltdown Sinks Property Prices (WS)

• Catalan Secessionist Parties Fail To Agree On Unity Ticket For Vote (R.)

• 1 in 200 British, 1 in 60 Londoners Are Homeless (G.)

Long term is always better.

• 700 Years of Data Forewarn of Rapid Reversal From Low Interest Rates (BBG)

Forget secular stagnation. One historian says the world is actually in its ninth “real rate depression” and 700 years of data show that – when it comes – the turnaround could be sudden. In research published on the Bank of England’s staff blog, Harvard University’s Paul Schmelzing says most work pointing to a period of permanently lower equilibrium real interest rates is too short term. Instead, he tracked the risk-free rate since 1311 by identifying the dominant asset of each period – starting with sovereign rates in the Italian city states in the 14th and 15th centuries and moving to long-term rates in Spain, then the Province of Holland, the U.K., Germany, and finally the U.S. Real rates, or the benchmark interest rates minus inflation, have averaged 4.78% while the 200-year real-rate average is 2.6%.

That makes the current market environment “severely depressed,” Schmelzing wrote. However, it’s simply following a five-century downward trend, in which there have been nine periods of secular decline followed by reversals. The current period – since the 1980s – is the second-longest recorded and its closest historical analogy is the global “Long Depression” of the 1880s and 1890s which saw low productivity growth, deflationary price dynamics, and the rise of global populism and protectionism. This spell seems to have ended without a push from policy makers. That could be good news for those struggling to find a fix for the current low-rate environment. “There is strong evidence suggesting that the last ‘secular stagnation cycle’ started fading relatively autonomously after just over two decades following the key financial shock, not requiring the aid of decisive fiscal or monetary stimulus.”

There’ll be more.

• Saudi Banks Freeze More Than 1,200 Bank Accounts in Anti-Corruption Purge (R.)

Saudi Arabian banks have frozen more than 1,200 accounts belonging to individuals and companies in the kingdom as part of the government’s anti-corruption purge, bankers and lawyers said on Tuesday. They added that the number is continuing to rise. Dozens of royal family members, officials and business executives have been detained in the crackdown and are facing allegations of money laundering, bribery, extorting officials and taking advantage of public office for personal gain. Since Sunday, the central bank has been expanding the list of accounts it is requiring lenders to freeze on an almost hourly basis, one regional banker said, declining to be named because he was not authorised to speak to media.

The banker did not name the companies affected but said they included listed and unlisted firms across many sectors. He added that if the freezes stayed in place for long, they could start to hurt day-to-day business activities such as paying staff and creditors or making other transactions. A second banker said, however, that most of the frozen accounts belonged to individuals rather than companies, and that banks were being allowed by the regulator to continue to fund existing commitments. Among top business executives detained in the probe are billionaire Prince Alwaleed bin Talal, chairman of investment firm Kingdom Holding; Nasser bin Aqeel al-Tayyar, founder of Al Tayyar Travel; and Amr al-Dabbagh, chairman of builder Red Sea International.

The stocks of all three companies, which have issued statements saying they continue to operate as normal, plunged between 9 and 10% on Tuesday. One of the bankers speaking to Reuters said the central bank had met with some foreign banks this week to reassure them that the freezing of accounts targeted individuals, and that firms linked to those people would not be damaged.

WSJ has gone full paywall.

• Saudi Crackdown to Confiscate Up to $800 Billion in Assets (WSJ)

The Saudi government is aiming to confiscate cash and other assets worth as much as $800 billion in its broadening crackdown on alleged corruption among the kingdom’s elite, according to people familiar with the matter. Several prominent businessmen are among those who have been arrested in the days since Saudi authorities launched the crackdown on Saturday, by detaining more than 60 princes, officials and other prominent Saudis, according to those people and others. The country’s central bank, the Saudi Arabian Monetary Authority, said late Tuesday that it has frozen the bank accounts of “persons of interest” and said the move is “in response to the Attorney General’s request pending the legal cases against them.”

The purge is the most extensive of the kingdom’s elite in recent history. Crown Prince Mohammed bin Salman, the son of King Salman, was named heir to the throne in June and has moved to consolidate power. He has said that tackling corruption at the highest level is necessary to overhaul what has long been an oil-dependent economy. The crackdown could also help replenish state coffers. The government has said that assets accumulated through corruption will become state property, and people familiar with the matter say the government estimates the value of assets it can reclaim at up to 3 trillion Saudi riyal, or $800 billion.

Strange bedfellows.

• Leaked Secret Israeli Cable Confirms Israeli-Saudi Coordination In Lebanon (ZH)

Early this morning, Israeli Channel 10 news published a leaked diplomatic cable which had been sent to all Israeli ambassadors throughout the world concerning the chaotic events that unfolded over the weekend in Lebanon and Saudi Arabia, which began with Lebanese Prime Minister Saad Hariri’s unexpected resignation after he was summoned to Riyadh by his Saudi-backers, and led to the Saudis announcing that Lebanon had “declared war” against the kingdom. The classified embassy cable, written in Hebrew, constitutes the first formal evidence proving that the Saudis and Israelis are deliberately coordinating to escalate the situation in the Middle East. The explosive classified Israeli cable reveals the following:

• On Sunday, just after Lebanese PM Hariri’s shocking resignation, Israel sent a cable to all of its embassies with the request that its diplomats do everything possible to ramp up diplomatic pressure against Hezbollah and Iran.
• The cable urged support for Saudi Arabia’s war against Iran-backed Houthis in Yemen.
• The cable stressed that Iran was engaged in “regional subversion”.
• Israeli diplomats were urged to appeal to the “highest officials” within their host countries to attempt to expel Hezbollah from Lebanese government and politics.

As is already well-known, the Saudi and Israeli common cause against perceived Iranian influence and expansion in places like Syria, Lebanon and Iraq of late has led the historic bitter enemies down a pragmatic path of unspoken cooperation as both seem to have placed the break up of the so-called “Shia crescent” as their primary policy goal in the region. For Israel, Hezbollah has long been its greatest foe, which Israeli leaders see as an extension of Iran’s territorial presence right up against the Jewish state’s northern border.

“Having failed to liberate the Syrians, Saudi, the West, its Sunni Gulf allies and Israel will now see if they can succeed in blocking any Iranian gas ambitions by liberating the Lebanese from their own government.”

• Lebanon – The Next Front In The Great Gas War (Golem XIV)

The Great Gas War has already two distinct fronts: The now relatively quiet Northern Front in Ukraine and the Southern Front in Syria in which the Western empire has been losing. It looks to me that Lebanon is being targeted as the next front, where the West hopes its loses might be recouped. Yesterday, November 6th, Reuters reported, “Saudi Arabia said on Monday that Lebanon had declared war against it because of attacks against the Kingdom by the Lebanese Shi‘ite group Hezbollah.” This comes after Israel, Saudi’s long time though largely un-offical best friend in the region, has been very publicly preparing to renew its own war with Lebanon – or more accurately with Hezbollah. As the American news journal Newsweek put it recently, “ISRAEL PREPARES FOR ANOTHER WAR WITH HEZBOLLAH AS IDF PRACTICES LEBANON INVASION.”

Why now and why Lebanon? Well the rulers of Saudi, a Sunni dominated country, will tell us that it is because Hezbollah is a Shia terrorist organisation. “Hezbollah” literally means the “Party of Allah” or “Party of God”. Saudi Gulf affairs minister Thamer al-Sabhan yesterday pointedly referred to Hezbollah as, “the Lebanese Party of the Devil”. Saudi is not alone of course, Hezbollah has also been listed as a terrorist organisation by America, Israel, the Arab League, the UK and the EU. It is also, however, part of the popular government of Lebanon having seats in its parliament. I suggest, however, a powerful reason that a new war with Hezbollah may be in the offing is because Lebanon is the next link in any gas pipeline that could potentially bring Iranian Gas to Europe.

That was the reason the West decided to “liberate” the Syrian people and it will be why they decide to enforce the same salvation upon the people of Lebanon. Having failed to liberate the Syrians, Saudi, the West, its Sunni Gulf allies and Israel will now see if they can succeed in blocking any Iranian gas ambitions by liberating the Lebanese from their own government. I would not be surprised to hear quite soon from opposition groups vocally denouncing the government or at least Hezbollah. I expect spokes people from those groups to suddenly get a global platform along-side American and regional supporters such as Saudi.

How to spell insanity.

• UK Sales Of Bombs And Missiles To Saudi Arabia Increase By Almost 500% (Ind.)

The number of British-made bombs and missiles sold to Saudi Arabia since the start of its bloody campaign in Yemen has risen by almost 500%, The Independent can reveal. More than £4.6bn of arms were sold in the first two years of bombings, with the Government grant increasing numbers of export licences despite mounting evidence of war crimes and massacres at hospitals, schools and weddings. The United Nations says air strikes by the Saudi-led coalition are the main cause of almost 5,295 civilian deaths and 8,873 casualties confirmed so far, warning that the real figure is “likely to be far higher”. It has condemned the “entirely man-made catastrophe” leaving millions more on the brink of famine and sparking the world’s worst cholera epidemic, while blacklisting Saudi Arabia for killing and maiming children.

There is also fresh concern over the Kingdom’s attempt to shut all air, land and sea ports into Yemen, which it said was to stop the flow of weapons but will also halt aid imports. British-made bombs have been found at the scene of bombings deemed to violate international law but the UK has continued its political and material support for Riyadh’s campaign. Figures from the Department for International Trade (DIT) show that in the two years leading up to the Yemen war, £33m of ML4 licences covering bombs, missiles and countermeasures were approved. But in the two years since the start of Saudi bombing in March 2015, the figure increased by 457% to £1.9bn, according to calculations by Campaign Against the Arms Trade (CAAT). Licences covering aircraft including Eurofighter jets have also risen by 70% to £2.6bn in the same period.

Secret meetings as the Middle East is imploding. And arms sales are exploding.

• May to Lose Second Top Minister in One Week Over Secret Israel Meetings (BBG)

Prime Minister Theresa May is weighing whether to fire a member of her cabinet only seven days after her defense secretary quit in a sexual harassment scandal, as the U.K. government faces fresh turmoil in the midst of Brexit talks. May is likely to dismiss her International Development Secretary Priti Patel in a row over a succession of unauthorized meetings she held with Israeli officials behind the prime minister’s back, according to reports from the BBC and The Sun Tuesday, which the U.K. government declined to deny. The premier has not yet had the chance to speak to Patel – who is on an official trip to Africa – about the latest revelations. A conversation would be expected before a decision is made about the minister’s future. If she is forced out, Patel will be the second minister to depart May’s cabinet in one week, after Michael Fallon resigned from the defense ministry amid allegations over his past behavior toward women.

For some, May’s latest headache is yet another demonstration of her weakness, which draws repeated questions over how her government can last long enough to see Brexit to the finish line. If more dominoes drop – in the shape of senior ministers – the last one to fall could ultimately be the prime minister herself. “The destabilizing effect on an already weak administration has prompted another burst of speculation that May could soon be forced to resign,” Mujtaba Rahman of Eurasia Group said in a note to clients. He thought one likely scenario is for May to be toppled if she fails to get a grip on the latest crisis and is ousted because her MPs judge that the government cannot go on like this – and is incapable of recovering the authority a prime minister needs.

The British economy is being bled dry….

• Those Who Broke The Economy Cannot Fix It (Ann Pettifor)

Make no mistake, last week’s increase in interest rates was a big deal. Painful as it might be for a good share of the population, the real point is that the Bank is signalling the end of a particular phase of monetary policy. Since 2010 the counterpart to self-defeating austerity policies has been expansionary monetary policies. These have inflated assets – enriching the already-rich, while failing to stimulate wider economic recovery. Yesterday the Bank of England’s Monetary Policy Committee signalled an end of this dangerous game. But this technocratic realignment makes no difference to the fact that ‘the Guardians of the nation’s finances’ – Bank and Treasury economists – have failed absolutely to revive the economy.

You need look no further than the (ongoing) decline in real wages, to continuing low levels of private investment, and to the dangers of rising household debt. A small interest rate rise is hardly likely to improve these conditions. Bank and Treasury economists (aided and abetted by the OBR) are guilty of defeatism. They argue that despite their powers, THERE IS NOTHING TO BE DONE. It is assumed that somehow ‘the invisible hand’ or ‘the markets’ will, without intervention by the authorities, correct the weakness, insecurity and failures of the British economy. The prolonged and painfully weak recovery is regularly blamed on something defined as “productivity”. By shifting responsibility for economic failure on to productivity, the Bank, Treasury and OBR economists are saying that somehow economic failure is inherent to the economy – to businesses and especially to workers.

“Nothing to do with us, guv” they mutter. They add that the situation has been exacerbated by the vote to leave the EU. This is a handy way of denying that the ongoing economic failure of the British economy (and the Brexit vote) can be explained by austerity policies, and the failures of the financial system. By taking this approach, economists at the Bank have – conveniently – set the scene for endorsing further inaction by the Chancellor later this month. Yesterday the Governor of the Bank was flanked by Ben Broadbent and Dave Ramsden. Ben Broadbent, as a Goldman Sachs economist, was among the earliest to call for austerity policies. Dave Ramsden (who did not vote for the rate rise) implemented these policies as top economist at the Treasury.

But both Broadbent and Ramsden were senior figures in economic policy-making throughout the debt inflation that preceded the crisis, and (we presume) supporters of financial globalisation. It is obvious to anyone with an ounce of common sense that austerity policies have hurt the most vulnerable, and damaged Britain’s economic potential, by forcing a brutal adjustment to lower quality and lower paid work. Labour has been forced to bear the brunt of the Global Financial Crisis. The weakness in productivity is just the outcome of these policies, not the cause.

… while Germany’s needs diverge ever more from those of southern Europe.

• German ‘Wise Men’ Sound Alarm Over ‘Overheating’ Economy (R.)

The German economy is at risk of overheating, according to a leaked advisory council report that follows pressure from the Bundesbank for a swifter end to the ECB’s expansive monetary policy. In their annual report, seen by Handelsblatt newspaper, the five “wise men” who advise the German government on economic policy said the economy, which they expected to expand strongly this year and next, was moving gradually into a “boom phase”. “There are clear signs that economic capacity is over-utilised,” read the report, which is due to be published on Wednesday. Germans have been among the foremost critics of the ECB’s bond-buying program, which was introduced three years ago to depress borrowing costs and reignite growth in the euro zone’s heavily indebted southern periphery.

The wise men expected Germany’s economy to expand by 2% this year and by 2.2% in 2018, Handelsblatt said. With unemployment at its lowest level since the early 1990s, Germany’s circumstances are very different from Italy’s or Spain‘s, straining the ECB’s ‘one-size-fits-all’ monetary policy. ECB President Mario Draghi last month announced a halving n the size of its 2 trillion euro bond-buying program, but this is far from the return to conventional monetary policy many Germans, including Bundesbank president Jens Weidmann, demand. Without an intervention to cool the economy, Germany’s hawks fear the buoyant economy could tip over into an inflationary cycle. Last week, a senior official from Chancellor Angela Merkel’s conservatives warned that German savers would not tolerate continued low interest rates for much longer.

Accountants and auditors are not doing their jobs.

• Bean Counters: Lost in Paradise (Ren.)

“The phrase ‘Set a thief to catch a thief’ is common parlance,” says Professor Atul K. Shah. “‘Set a global brand of professional accountants to rob society and pilfer its taxes, bleeding governments’, is not, but it should be.’ Professor Bill Black says internal controls are absolutely critical in reducing fraud by insiders in particular, but not just insiders, as the Paradise Papers have repeatedly demonstrated. Emile Woolf says there is no way to remove control fraud and dodgy accounting practices from the economy without first prosecuting the culprits. “The devils that committed this criminal negligence – with the exception of the Royal Bank of Scotland (RBS) – have never been fined or prosecuted” he said. “What you can then do is create a ring fenced fund inside those institutions, earmarked to save them from going under. But the company has to recognise it has to be paid back.

“RBS is incapable of paying back the billions of fines it still owes for misconduct,” he says. “Where does that money come from and where does it go? Without the fines RBS would have made £100 million profit this year, but because of the reserve for fines in the USA and UK, all those fines are far too great to allow for payment of a dividend.” Of course calculating a true profit figure is difficult when a significant portion of that profit is fraudulent, because it doesn’t take into account the result of the inequities of ten years ago. “The worrying thing for all of us is if it happens again,” he says. “My hope is that three years from now, banks will be forced to recognise their loans that will never be repaid. But my worry is that this is going to be after the next financial crisis, because it’s happening again. There is no redeeming features in the present. The only difference is the next crisis is going to be bigger.”

Joel Benjamin told Renegade Inc that accounting is as much about *what* you count or don’t count as it is *how* you count it. “This is evidenced through the practice of ‘base erosion and profit shifting’ – shifting profits to offshore low or no tax jurisdictions, ” he said. In the space of 50 years, Britain’s economy has transformed from an industrial power house, to that of a finance-led extractive parasite, where the cash starved productive economy receives less than 10% of bank credit. “Until the Big Four accountancy firms are accurately viewed as enablers of corporate offshore dealing, regulatory arbitrage and ardent defenders of the neoliberal order, not the ‘reputable’ objective independent arbiters of the public interest as they claim, society will continue to be taken for a ride, and public services and social cohesion will continue their long decline,” he said.

Bill Mitchell in a long talk with his alter ego.

• British Mainstream Media Spreading Dangerous MMT Ideas (Bilbo)

Mitchell tried to tell me that governments do not spend by ‘printing money’ but rather just adjust bank accounts with numbers. But I know as anyone in the street knows that they just want to print more and more. That is at the core of MMT – they want the government to go on a spending spree and just ignore the inflationary consequences. They hide that by saying that “public spending cannot be unlimited and must be commensurate to the capacity of the economy” which is just a smokescreen that I can see through. And everybody will see through it. It is code for spend like a drunken’ sailor – throw money at lazy people who cannot be bothered finding a job. Throw money at public schools that teach socialist doctrines – you know about inequality and stuff like that.

Throw money at public hospitals so that people can receive unlimited health care without having to pay for it – that is the quickest way to encourage waste and bad behaviour. People know that they can just get sick and no matter what their income is they will get some care. Where is the incentive to stay healthy in that sort of system. The article also shows how stupid Mitchell is when it says he: “… debunks the idea that governments borrow money from international markets and with it the notion that they are hostage to the market.” Well where the hell else do they get the cash from? Does he really think we are that stupid? How come China has all those US government debt bonds or whatever they are called and the US government is spending the Chinese cash? How does he explain that obvious point?

Well he tried to claim the Chinese doesn’t issue US dollars and that only the US government issues US dollars so that it cannot possibly be funded by the Chinese. I don’t buy that, not that I understood anything he said about this – all this talk about trade surpluses accumulating financial claims in the currency that the deficit country issues, and then allowing the surplus nation to use those claims (say, US dollars in the first instance) to purchase US dollar financial assets etc ad nauseum. As if that tells us anything. How come the Chinese can loan the US government money that is what I want to know? Mitchell told the journalist that Jeremy Corbyn should not worry about international capital markets because Britain could impose capital controls if it wanted to. That gets to the nub of my worries – socialist governments stealing hard-earned cash from investors who actually have some get up and go.

Malls don’t look like good investments.

• Brick-and-Mortar Meltdown Sinks Property Prices (WS)

Commercial real estate prices soared relentlessly for years after the Financial Crisis, to such a degree that the Fed has been publicly fretting about them. Why? Because US financial institutions hold nearly $4 trillion of commercial real estate loans. But the boom in most CRE sectors is over. The Green Street Property Price Index – which measures values across five major property sectors – had soared 107% from May 2009 to the plateau that began late last year, and 27% from the peak of the totally crazy prior bubble that ended with such spectacular fireworks. But it has now turned around, dragged down by a plunge in prices for retail space. The CPPI by Green Street Advisors dropped 1.1% in October from September. In terms of points, the 1.4-point decline was the largest monthly decline since March 2009. The index is now below where it had been in June 2016:

This phenomenal bubble, as depicted by the chart above, has even worried the Fed because US financial institutions hold nearly $4 trillion of CRE loans, according to Boston Fed governor Eric Rosengren earlier this year. Of them, $1.2 trillion are held by smaller banks (less than $50 billion in assets). These smaller banks tends to have a loan book that is heavily concentrated on CRE loans, and these banks are less able to withstand shocks to collateral values. Rosengren found that among the root causes of the Financial Crisis “was a significant decline in collateral values of residential and commercial real estate.” But the CRE bubble isn’t unraveling as gently as the chart suggests. Some sectors are still surging, while others are plunging. According to the report, the index, which captures the prices at which CRE transactions are currently being negotiated and contracted, “was pushed down by falling mall valuations.”

Puidgemont predicted to get 14-15 out of 135 seats. He won’t be the leader.

• Catalan Secessionist Parties Fail To Agree On Unity Ticket For Vote (R.)

Catalan secessionist parties on Tuesday failed to agree on a united ticket to contest a December snap regional election, making it more difficult to rule the region after the vote and press ahead with their collective bid to split from Spain. Catalonia’s secessionist push has plunged Spain into its worst political crisis in four decades, triggered a business exodus, forced Madrid to cut its economic forecast and reopened old wounds from Spain’s civil war in the 1930s. Pro-independence groups have called for a general strike in the restive region on Wednesday. Catalan political parties had until midnight on Tuesday to register coalitions ahead of the Dec. 21 vote, but the two main forces which formed an alliance to rule the region for the last two years did not manage to agree on a new pact in time.

While they could still find an agreement after the vote, political analysts say the lack of a deal on a joint campaign may also trigger a leadership fight at the top of the movement. This is because center-right PdeCat (Catalan Democratic Party) of sacked Catalan president Carles Puigdemont is expected to be overtaken by leftist Esquerra Republicana de Catalunya (ERC) of former regional vice president Oriol Junqueras. Puigdemont and Junqueras are the two main leaders behind the current secession bid that last month led to a unilateral declaration of independence which Spain thwarted by imposing direct rule on the region. Junqueras is currently in custody pending a potential trial on charges of sedition, rebellion and misuse of public funds. Puigdemont, who faces the same charges, is currently in self-imposed exile in Belgium and has said he would oppose extradition.

An opinion poll released on Sunday by Barcelona-based newspaper La Vanguardia showed Junqueras’ ERC could garner between 45 and 46 seats in the 135-strong regional assembly while Puigdemont’s PdeCat would win between 14 and 15 seats. In order to reach the 68-seat threshold for a majority, they would then have to form a parliamentary alliance with anti-capitalist CUP, which is expected to get seven or eight seats. Such an alliance previously existed between 2015 and 2017.

Down the drain.

• 1 in 200 British, 1 in 60 Londoners Are Homeless (G.)

More than 300,000 people in Britain – equivalent to one in every 200 – are officially recorded as homeless or living in inadequate homes, according to figures released by the charity Shelter. Using official government data and freedom of information returns from local authorities, it estimates that 307,000 people are sleeping rough, or accommodated in temporary housing, bed and breakfast rooms, or hostels – an increase of 13,000 over the past year. Shelter said the figures were an underestimate as they did not include people trapped in so-called “hidden homelessness”, who have nowhere to live but are not recorded as needing housing assistance, and end up “sofa surfing”. London, where one in every 59 people are homeless, remains Britain’s homelessness centre. Of the top 50 local authority homelessness “hotspots”, 18 were in Greater London, with Newham, where one in 27 residents are homeless, worst hit.

However, while London’s homeless rates have remained largely stable over the past year, the figures show the problem is becoming worse in leafier commuter areas bordering the capital, such as Broxbourne, Luton, and Chelmsford. Big regional cities have also seen substantial year-on-year increases in the rate of homelessness. In Manchester, one in 154 people are homeless (compared with one in 266 in 2016); in Birmingham one in 88 are homeless (119); in Bristol one in 170 are affected (199). Polly Neate, chief executive of Shelter, said: “It’s shocking to think that today, more than 300,000 people in Britain are waking up homeless. Some will have spent the night shivering on a cold pavement, others crammed into a dingy hostel room with their children. And what is worse, many are simply unaccounted for.

Debt Rattle October 15 2014

Oct 152014

October 15, 2014 Posted by Raúl Ilargi Meijer at 11:29 am Finance Tagged with: BIS, BoJ, consumer, ebola, Fed, foreclosure, Germany, oil, reversal 10 Responses »

John Vachon Rear of grocery store in Baltimore Jul 1938

• BIS Warns On ‘Violent’ Reversal Of Global Markets (AEP)

• No Happy Ending for Investors in Central Bank Fairy Tale (Bloomberg)

• Saudi Prince Alwaleed Says Falling Oil Prices ‘Catastrophic’ (Telegraph)

• Crumbling US Fix Seen With Global Trillions of Dollars (Bloomberg)

• Americans Face Post-Foreclosure Hell As Wages, Assets Seized (Reuters)

• The $11 Trillion Advantage That Shields U.S. From Turmoil (Bloomberg)

• No Stock Salvation Seen in Bank Results as VIX Surges (Bloomberg)

• Triple-Dip Eurozone Recession Fears As Germany Cuts Growth Forecast (Guardian)

• Merkel Vows Austerity Even as Growth Projection Cut (Bloomberg)

• ‘Bank of Japan Should Quit While It’s Ahead’ (Bloomberg)

• UK Economy Sinks at the Checkout Line (Bloomberg)

• On The Precipice Of A Breakdown In Confidence (Ben Hunt)

• Average UK Worker £5,000 A Year Worse Off (Guardian)

• Youth Unemployment In Rich Middle East A ‘Liability’ (CNBC)

• Russia-US Relations Reset ‘Impossible’: PM Medvedev (CNBC)

• New US Price Tag for War Against ISIS: $40 Billion a Year (Fiscal Times)

• Real Life is Not Spin Art (Jim Kunstler)

• ‘Star Trek’ Time Capsule 2047 Launches As Earth Burns (Paul B. Farrell)

• UK Waterways Face ‘Invasional Meltdown’ From European Organisms (BBC)

• Ebola Outbreak Boosts Odds of Mutation Helping It Spread (Bloomberg)

• Second Health Care Worker Tests Positive For Ebola In Texas (CNBC)

• WHO Sees 10,000 Ebola Cases a Week in West Africa by Dec. 1 (Bloomberg)

“The biggest worry is a precipitous sell-off in the bond markets once the US Federal Reserve and the other major central banks begin to tighten in earnest. Mr Debelle cited the US bond crash in 1994, but warned that it could be even more violent this time with a “fair chance that volatility will feed on itself”.”

• BIS Warns On ‘Violent’ Reversal Of Global Markets (AEP)

The global financial markets are dangerously stretched and may unwind with shock force as liquidity dries up, the Bank of International Settlements has warned. Guy Debelle, head of the BIS’s market committee, said investors have become far too complacent, wrongly believing that central banks can protect them, many staking bets that are bound to “blow up” as the first sign of stress. In a speech in Sydney, Mr Debelle said: “The sell-off, particularly in fixed income, could be relatively violent when it comes. There are a number of investors buying assets on the presumption of a level of liquidity which is not there. This is not evident when positions are being put on, but will become readily apparent when investors attempt to exit their positions. “The exits tend to get jammed unexpectedly and rapidly.” Mr Debelle, who is also chief of financial markets at Australia’s Reserve Bank, said any sell-off could be amplified because nominal interest rates are already zero across most of the industrial world.

“That is a point we haven’t started from before. There are undoubtedly positions out there which are dependent on (close to) zero funding costs. When funding costs are no longer close to zero, these positions will blow up,” he said. The BIS warned earlier this summer that the world economy is in many respects more vulnerable to a financial crisis than it was in 2007. Debt ratios are now far higher, and emerging markets have also been drawn into the fire over the last five years. The world as whole has never been more leveraged. Debt ratios in the developed economies have risen by 20 percentage points to 275pc of GDP since the Lehman Brothers crash. The new twist is that emerging markets have also been on a debt spree, partly as a spill-over from quantitative easing in the West. This has caused a flood of dollar liquidity into these countries that they have struggled to control. It has pushed up their debt ratios by 20 percentage points to 175pc, and much of the borrowing has been at an average real rate of 1pc that is unlikely to last.

It was never in the cards. Unless perhaps you’re free to come and go as you please. Most institutional investors are not. So they must get burned.

• No Happy Ending for Investors in Central Bank Fairy Tale (Bloomberg)

You know it’s a special moment in the financial markets when analysts ditch the jargon and reach for artistic references. Ed Yardeni cited “The Wizard of Oz.” IMF Managing Director Christine Lagarde went with both “Alice in Wonderland” and Harry Potter. Stephen King – the HSBC chief economist, not the author – trolled the fantasy aisle. Their message for investors: Even after the MSCI World Index’s lurch to its lowest since February, sentiment risks souring for a while longer. The reason is that just as global growth is weakening again, central bankers who sustained much of the expansion are running out of ammunition. “Investors around the world are shocked, shocked that the monetary wizards may have run out of magic tricks to revive global economic growth,” said Yardeni. “Even the wizards are admitting that their powers to do so are limited.” To King, markets spent most of this year caught up in a fairy tale that policy makers were on top of things.

In the rosy scenario, the Federal Reserve would next year cool U.S. growth with tighter monetary policy and the European Central Bank would revive expansion with quantitative easing. Everyone would win. “Like most fairy tales it can’t be true in reality,” King told a conference in Washington last week. “There’s something wrong with it.” A case in point is the reliance of the ECB on the weaker euro to deliver an economic boost. That’s not likely to work because what matters is its trade-weighted value. On that basis, he calculates sterling and the yen both fell 20% when their authorities pursued easier monetary policy in recent years.

The problem for the ECB is that countries are now more resistant to their own exchange rates strengthening. Switzerland and the Czech Republic are capping their currencies against the euro; Sweden is unhappy with gains in the krona. The Bank of Japan would likely push back against any gain in the yen. Australia and New Zealand also have signaled disquiet with strength in their dollars. To compensate for all that, the euro would have to fall to parity against the greenback. “That’s way bigger than anything that anyone is currently forecasting,” says King, whose colleagues forecast the euro to fall to $1.19 by the end of 2015 from $1.27 today, which would amount to a 3% decline on a trade-weighted basis. The upshot? Either the ECB’s stimulus efforts fall short or the dollar goes through the roof, preventing the Fed from raising interest rates and hitting dollar-reliant economies in Latin America and China.

Throwing in a bit – or two bits – of confusion. Just like the Fed.

• Saudi Prince Alwaleed Says Falling Oil Prices ‘Catastrophic’ (Telegraph)

Saudi Arabia’s most high-profile billionaire and foreign investor, Prince Alwaleed bin Talal, has launched an extraordinary attack on the country’s oil minister for allowing prices to fall. In a letter in Arabic addressed to ministers and posted on his website, Prince Alwaleed described the idea of the kingdom tolerating lower prices below $100 per barrel as potentially “catastrophic” for the economy of the desert kingdom. The letter, first reported online by the FT, is a significant attack on Saudi’s highly respected 79-year-old oil minister Ali bin Ibrahim Al-Naimi who has the most powerful voice within the Organisation of Petroleum Exporting Countries (Opec). Prince Alwaleed – who is a member of the ruling house of Saud – is also a major international investor, who holds significant stakes in companies from News Corp through to Citigroup.

The publication of the letter comes as Brent oil prices crashed under $87 after the International Energy Agency slashed its forecast for oil demand this year amid signs of weaker global economic growth and a glut of crude. Saudi Arabia is the world’s largest exporter and has the capacity to pump 12.5m barrels per day (bpd) if needed, giving it tremendous power both within Opec but also the international market. Reuters had earlier reported that Iran had rowed back on its earlier concerns over falling prices and was more willing to leave production unchanged at the next meeting of Opec in Vienna in November. Prince Alwaleed had taken particular issue with a remark attributed to Saudi Arabia’s oil minister, in which he said that falling prices were “no cause for alarm”.

America can no longer afford to maintain its own infrastructure. All the new debt goes towards keeping banks look presentable.

• Crumbling US Fix Seen With Global Trillions of Dollars (Bloomberg)

The concrete piers of two new bridges are rising out of the Ohio River between Louisville, Kentucky, and southern Indiana, as crews blast limestone and move earth to build the roads and tunnels that will soon connect the twin spans to nearby interstate highways. For more than two decades, the project languished. Business and political leaders on both sides of the river couldn’t agree on how to relieve snarled traffic, improve safety and spur development that was bypassing the region for Indianapolis and Nashville. The Ohio River Bridges project is an American anomaly that has the potential to become a model while lack of money and political will are allowing many of the nation’s roads and bridges to crumble. Along the shores of the Ohio, Democrat-led Kentucky and Republican-run Indiana have forged a partnership to rebuild U.S. infrastructure at a time of partisan gridlock and untapped trillions in private dollars.

“It’s an enduring irony that the U.S., allegedly the home of innovation, is absolutely block-headed and backwards in this one respect,” former Indiana Governor Mitch Daniels, now the president of Purdue University in West Lafayette, Indiana, said in an interview. “America needs the upgrade and modernization of our infrastructure, and I don’t think you’ll get there if you keep excluding, or at least discouraging, private capital.” President Barack Obama’s administration, which had resisted private financing of public works, is starting a new center to serve as a one-stop shop for bringing capital into government projects. During a Sept. 9 infrastructure conference with investors, U.S. Treasury Secretary Jacob J. Lew said while direct federal spending is indispensable in such cases, tight budgets demand creative ways for unlocking private money.

His cabinet colleague, Transportation Secretary Anthony Foxx, put it more bluntly when he announced the Build America Investment Initiative in July. “There will always be a substantial role for public investment,” Foxx said. “But the reality is we have trillions of dollars internationally on the sidelines that are not being put to work.” Fixing those roads and bridges also boosts employment. Every $1 billion in new infrastructure investment creates about 18,000 jobs, according to a 2009 report by economists at the University of Massachusetts’ Political Economy Research Institute.

Brace yourself for the debt collectors.

• Americans Face Post-Foreclosure Hell As Wages, Assets Seized (Reuters)

Many thousands of Americans who lost their homes in the housing bust, but have since begun to rebuild their finances, are suddenly facing a new foreclosure nightmare: debt collectors are chasing them down for the money they still owe by freezing their bank accounts, garnishing their wages and seizing their assets. By now, banks have usually sold the houses. But the proceeds of those sales were often not enough to cover the amount of the loan, plus penalties, legal bills and fees. The two big government-controlled housing finance companies, Fannie Mae and Freddie Mac, as well as other mortgage players, are increasingly pressing borrowers to pay whatever they still owe on mortgages they defaulted on years ago. Using a legal tool known as a “deficiency judgment,” lenders can ensure that borrowers are haunted by these zombie-like debts for years, and sometimes decades, to come. Before the housing bubble, banks often refrained from seeking deficiency judgments, which were seen as costly and an invitation for bad publicity.

Some of the biggest banks still feel that way. But the housing crisis saddled lenders with more than $1 trillion of foreclosed loans, leading to unprecedented losses. Now, at least some large lenders want their money back, and they figure it’s the perfect time to pursue borrowers: many of those who went through foreclosure have gotten new jobs, paid off old debts and even, in some cases, bought new homes. “Just because they don’t have the money to pay the entire mortgage, doesn’t mean they don’t have enough for a deficiency judgment,” said Florida foreclosure defense attorney Michael Wayslik. Advocates for the banks say that the former homeowners ought to pay what they owe. Consumer advocates counter that deficiency judgments blast those who have just recovered from financial collapse back into debt — and that the banks bear culpability because they made the unsustainable loans in the first place.

The stupidest thing I’ve seen in a while. The US consumer will save the economy … Yeah. The US consumer is broke and in debt, guys.

• The $11 Trillion Advantage That Shields U.S. From Turmoil (Bloomberg)

Call it America’s $11 trillion advantage: Consumer spending is likely to steer the U.S. economy safely through the shoals of deteriorating global growth and turbulent financial markets. The combination of more jobs, falling gasoline prices and low borrowing costs will help lift household purchases. Such tailwinds probably matter more than Europe’s struggles or the slackening in emerging markets that caused the Dow Jones Industrial Average last week to erase its gains for the year. “We’ve got a lot of things working in favor of the consumer right now,” said Nariman Behravesh, chief economist in Lexington, Massachusetts, at IHS Inc. “To have that kind of strength is the biggest asset for the U.S. It’s a pretty rock solid footing.” Household purchases make up almost 70% of the $16.8 trillion U.S. economy and have climbed an average 2% in the recovery that’s now in its sixth year. Spending growth will accelerate to 2.7% next year after 2.3% in 2014, according to the latest Bloomberg survey of economists.

The poll, taken from Oct. 3 to Oct. 8 in the midst of the meltdown in equities, showed little change in the median projections from the prior month. The economy is forecast to expand 3% in 2015 after 2.2% growth this year, according to the survey. “We’ve got the proverbial 800-pound gorilla – the consumer,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. “Households are more fixated on the good news here, and a big part of that is the labor market. The U.S. is going to be pretty immune to the rest of the world.” Economic weakness in Europe, slowing growth in China and tensions in the Middle East sparked a $3.5 trillion loss in value for global equities through last week since a record in September. Brent crude oil yesterday sank to an almost four-year low and the dollar has climbed almost 5% since June.

See my article yesterday: The Fed Must Feed The Beast.

• No Stock Salvation Seen in Bank Results as VIX Surges (Bloomberg)

Options traders are skeptical this week’s bank earnings will deliver calming news to a stock market enduring its worst losses in two years. U.S. stocks have fallen for the past three days on concerns about global growth, the future of interest rates and the spread of Ebola. With companies from JPMorgan to Goldman Sachs and Bank of America scheduled to report this week, demand for bearish options on the largest U.S. financial firms has increased to the highest since May 2013. Even though banks have escaped the worst losses in the recent selloff, the companies will struggle to boost profits if the Federal Reserve keeps interest rates near zero. Analyst projections tracked by Bloomberg show financial companies in the S&P 500 increased earnings 3.1% in the third quarter and 1.6% in the fourth. “There’s an anticipation that a significant percentage of earnings are going to lower forward guidance relatively significantly, including some of the big banks,” Jeff Sica at Sica Wealth Management said.

“That’s going to have a very negative impact on the stock market.” JPMorgan, Citigroup and Wells Fargo are scheduled to provide quarterly results this morning. Bank of America, Goldman Sachs and Morgan Stanley report later in the week. Low interest rates have crimped lending profits for banks, which benefit from higher loan yields. Net interest margins, the difference between what a firm pays in deposits and charges for loans, were a record-low 3.1% in the second quarter, according to St. Louis Fed data on U.S. banks with average assets greater than $1 billion. Fed Vice Chairman Stanley Fischer said during the weekend that U.S. rate increases could be delayed by slowing growth elsewhere. The central bank should be “exceptionally patient” in adjusting monetary policy, Chicago Fed President Charles Evans said yesterday. Federal fund futures show the likelihood of a September 2015 rate increase fell to 46%, from 56% on Oct. 10, and 67% two months ago, according to data compiled by Bloomberg.

“If you get rates rising, you can price that into loans,” Peter Sorrentino, who manages shares of Wells Fargo and JPMorgan for Huntington Asset Advisors, said. “We haven’t seen much shift in the yield curve, even though people thought this would be the year for it because of the Fed easing on QE. There’s a disappointment that we haven’t seen better margin growth this year.”

The eurozone is a straightjacket that will crush everything inside.

• Triple-Dip Eurozone Recession Fears As Germany Cuts Growth Forecast (Guardian)

Germany has slashed its growth forecasts for this year and 2015, sparking calls for a public spending boost to prevent the eurozone falling into a triple-dip recession. Berlin now expects growth of just 1.2% this year and the same in 2015, it said on Tuesday, down from 1.8% and 2%, in the face of slowing export growth. It came as official Eurostat figures showed that industrial production across the eurozone slumped in August by an alarming 1.8% month-on-month, meaning it was 1.9% lower than a year ago. With reports mounting of slowing industrial output in Germany and declining business confidence, the eurozone’s largest economy is now expected to expand at less than half the pace of the UK and US over the next year.

The economy minister, Sigmar Gabriel, blamed geopolitical tensions and global economic problems overseas. He said: “The German economy is steering through rough foreign waters. Geopolitical crises have also increased uncertainty in Germany and moderate growth is weighing on the German economy.” An October survey showed a big fall in investor sentiment in Germany, mirroring reports through the summer months of stumbling business confidence following the erosion of previously buoyant demand for German goods. Across the eurozone business optimism in the last three months fell from net 35% to just 5%, according to Grant Thornton’s International Business Report, dragged down by a dramatic fall in German optimism, which plummeted from a net 79% to 36% over the period.

Haven’t the read the great Keynes?

• Merkel Vows Austerity Even as Growth Projection Cut (Bloomberg)

Chancellor Angela Merkel told lawmakers that Germany won’t raise public spending to stimulate the economy even after her government slashed growth forecasts for this year and next, a party official said. Europe’s biggest economy will probably grow by 1.2% this year and by 1.3% in 2015, marking respective drops from 1.8% and 2.0% forecast in April, the Economy Ministry said today. Merkel, addressing a closed-door meeting of members of her Christian Democratic Union-led bloc in Berlin today, vowed that her government will pursue its balanced budget goal regardless of the outlook, according to the CDU official, who asked not to be named because the session was private.

“We’re agreed in the German federal government that we must stay the course even in difficult times,” Finance Minister Wolfgang Schaeuble told reporters in Luxembourg today after a meeting of European Union finance ministers. A separate party official who attended the Berlin meeting told reporters later that Merkel said it’s more important than ever for the EU to hold to its rules and that Germany’s stance is crucial. If Germany deviates from its fiscal position, it would give other countries a reason to do likewise, she said. “This, in a word, is silly: Germany should borrow money and invest in infrastructure to boost growth,” Fredrik Erixon, director of the European Centre for International Political Economy in Brussels, said by phone. “Merkel and others have invented a story about how Germany always had an austere budget. Yet in postwar history, Germany has repeatedly shown far more fiscal policy flexibility to lift growth.”

But it won’t, it’ll keep going until the end.

• ‘Bank of Japan Should Quit While It’s Ahead’ (Bloomberg)

The Bank of Japan should quit while it’s ahead. That’s the advice of the central bank’s former chief economist, Hideo Hayakawa. The BOJ should start paring its unprecedented easing soon or risk hurting people, Hayakawa said in an interview. Pushing inflation to a 2% target in a short period will raise living costs without boosting employment or growth, he said. “It’s important to quit while you’re ahead,” said Hayakawa, who was an executive director at the BOJ until March 2013. “Basically, drop the two-year reference, keep the 2% target and taper slowly.” The remarks underscore the risks Governor Haruhiko Kuroda is taking to reflate the world’s third-biggest economy with a stimulus program he began in April last year. While the BOJ is still winning its “gamble” with its stimulus, it shouldn’t push its luck, Hayakawa said. “The secret to success is declare victory while you’re winning,” he said.

With prices rising by about 1% and a labor shortage intensifying, the central bank will eventually achieve the inflation goal and shouldn’t rush, according to Hayakawa. Masayoshi Amamiya, BOJ’s executive director in charge of monetary affairs, said today in a parliamentary committee that the central bank’s easing helps invigorate the economy. With the BOJ buying assets at a record pace, it could face huge losses should interest rates start to rise, according to Hayakawa. The central bank buys about 7 trillion yen of Japanese government bonds a month. Growing public criticism of the yen’s recent weakness means the BOJ can’t stick to its current plan to reach 2% inflation, he said. “The short cut to achieving the 2% target is through a weak yen but that goes against public sentiment,” Hayakawa said. “It’s not good to go too far and get wounded later.”

US and UK are supposedly doing well. But in reality, just like in the US, there are no consumers in Britain left either.

• UK Economy Sinks at the Checkout Line (Bloomberg)

The U.K. supermarket scene is a microcosm of the British economy and holds up a mirror to the global backdrop in developed economies. Low wages and so-called flexible working contracts make it hard for workers to feel they’re sharing in the economic recovery, undermining consumer confidence; the grocery companies themselves, meantime, have no pricing power and are in a beggar-thy-neighbor race to the bottom, sacrificing margins to maintain sales. It’s a combination that should loom large in the Bank of England’s monetary policy deliberations, curtailing its instincts to raise interest rates. Similar considerations should be high on the Federal Reserve’s checklist of things to watch out for when it begins normalizing policy. And in Europe, this should be lighting a fire under the European Central Bank’s efforts to rejuvenate growth.

The price war among U.K. supermarkets has erased more than half of the value of Tesco in a year, making Britain’s biggest retailer the highest-profile victim of the battle. Tesco’s local difficulties notwithstanding — ditching the chief executive for his disastrous attempt to emulate Jeff Bezos’s strategy, followed by accounting irregularities that may turn out to be fraudulent and have led to eight employees being suspended – the discounting by two German retailers, Aldi and Lidl, have depressed food prices for the entire U.K. industry: Aldi increased its market share to 4.8% from 3.7% in the 12 weeks to Sept. 14, according to market researcher Kantar, while Lidl expanded to 3.5% from 3.0%. In response, Wm Morrison Supermarkets said this month it’s introducing a new loyalty card. Customers will be automatically reimbursed for the difference between what they pay in a Morrison store and any cheaper price available at Aldi, Lidl, Tesco, Sainsbury or Asda. Despite their protestations, all of the U.K. supermarkets are now discount stores.

“The words are not lies. But they’re only not-lies because if they were found to be lies that would be counterproductive to the social policy goals, not because there’s any fundamental objection to lying.”

• On The Precipice Of A Breakdown In Confidence (Ben Hunt)

Here is the most fundamental idea behind game theory, the one concept you MUST understand to be an effective game player. Ready? You are not a super genius, and we are not idiots. The people you are playing with and against are just as smart as you are. Not smarter. But just as smart. If you think that you are seeing more deeply into a repeated-play strategic interaction (a game!) than we are, you are wrong. And ultimately it will cost you dearly. But if there is a mutually acceptable decision point – one that both you and we can agree upon, full in the knowledge that you know that we know that you know what’s going on – that’s an equilibrium. And that’s a decision or outcome or policy that’s built to last. Fair warning, this is an “Angry Ben” email, brought on by the US government’s “communication policy” on Ebola, which is a mirror image of the US government’s “communication policy” on markets and monetary policy, which is a mirror image of the US government’s “communication policy” on ISIS and foreign policy.

We are being told what to think about Ebola and QE and ISIS. Not by some heavy-handed pronouncement as you might find in North Korea or some Soviet-era Ministry, but in the kinder gentler modern way, by a Wise Man or Woman of Science who delivers words carefully chosen for their effect in constructing social expectations and behaviors. The words are not lies. But they’re only not-lies because if they were found to be lies that would be counterproductive to the social policy goals, not because there’s any fundamental objection to lying. The words are chosen for their truthiness, to use Stephen Colbert’s wonderful term, not their truthfulness. The words are chosen in order to influence us as manipulable objects, not to inform us as autonomous subjects. It’s always for the best of intentions. It’s always to prevent a panic or to maintain confidence or to maintain social stability. All good and noble ends. But it’s never a stable equilibrium. It’s never a lasting legislative or regulatory peace.

The policy always crumbles in Emperor’s New Clothes fashion because we-the-people or we-the-market have not been brought along to make a self-interested, committed decision. Instead the Powers That Be – whether that’s the Fed or the CDC or the White House – take the quick and easy path of selling us a strategy as if they were selling us a bar of soap. This is what very smart people do when they are, as the Brits would say, too clever by half. This is why very smart people are, as often as not, poor game players. It’s why there aren’t many academics on the pro poker tour. It’s why there haven’t been many law professors in the Oval Office. This isn’t a Democrat vs. Republican thing. This isn’t a US vs. Europe thing. It’s a mass society + technology thing. It’s a class thing.

Yeah, they’re doing absolutely fab.

• Average UK Worker £5,000 A Year Worse Off (Guardian)

The protracted squeeze on pay packets since the financial crisis means the average worker in Britain is £5,000 a year worse off, a leading labour market expert warns on Wednesday. In advance of official figures expected to show that pay growth has again lagged far behind inflation over the summer months, Prof Paul Gregg of Bath University says that because wages have fallen in real terms since 2008, today they are nearly 20% below where they would be had wage growth continued. His calculations are likely to be seized on by Labour as it seeks to keep the “cost-of-living crisis” centre-stage before the election.

Labour market data on Wednesday is expected to underscore the pressure on household finances, with wage growth forecast at just 0.7% on the year over the three months to August, less than half the pace of inflation in August. That would mark just a small pick-up in pay growth from 0.6% in the three months to July. Gregg’s report for the university’s Institute for Policy Research (IPR) casts doubt on predictions from other economists that wage growth will start to pick up significantly in coming months. He warns that the government cannot rely on falling unemployment alone to restart sustained wage growth. Instead, Britain must turn around its relatively poor performance on productivity. “Continued falls in unemployment will lead to modest wage recovery, but this alone will not go far enough,” says Gregg.

I’d use a much stronger term than that.

• Youth Unemployment In Rich Middle East A ‘Liability’ (CNBC)

Youth unemployment across the wealthy Middle East is one of the region’s greatest challenges and liabilities, according to a report by the World Economic Forum (WEF). The Middle East and North Africa (MENA) might have abundant wealth as a result of natural resources such as oil and gas but the region has the highest regional youth unemployment rate in the world with 27.2% of under-25s unemployed in the Middle East. More than 29% are out of work in North Africa — more than double the global average, according to WEF’s report. With more than half of its population under 25 years old the MENA region now “stands at a critical juncture,” according to the report. It warns the youthful populace could turn into a “liability” rather than a “youth dividend” if an environment in which youth aspirations can be fulfilled is not created soon. “The demographic ‘youth bulge’ represents one of the greatest opportunities, as well as one of the greatest challenges, faced by the Arab World, ” the report, released in October, warns.

“Solutions to date show little progress in confronting the challenge of youth unemployment in a structural manner, in spite of existing financial means, ” the report which was compiled from a range of consultations with business, government and civil society leaders and academics in the region said. Countries belonging to the Gulf Cooperation Council (GCC), including Kuwait, Qatar, Saudi Arabia and the United Arab Emirates have persistently high youth unemployment rates, with the highest found in oil-rich Saudi Arabia where the rate hovers around 30%, data from the G20 organization showed this year. Despite the economic support of a spectacular rise in oil prices (the WEF estimates that today oil revenues account for at least 80% of total government revenues in all GCC countries), the fast economic expansion of the GCC during the past decades has not translated into jobs for the under-25s “suggesting that economic expansion is not enough to solve the youth unemployment challenge in the region,” WEF said.

On Obama’s UN speech: “It’s sad, it’s like some kind of mental aberration.”

• Russia-US Relations Reset ‘Impossible’: PM Medvedev (CNBC)

Russia’s Prime Minister has said a “reset” of relations with the United States is “impossible” and that ties between the two powers had been damaged by “destructive” and “stupid” sanctions imposed on the country in response for its role in the conflict in neighboring Ukraine. In an exclusive interview with CNBC, Dmitry Medvedev said any suggestion of a “reset”, as mooted by Russia’s foreign minister, Sergei Lavrov, in September, was out of the question.”No, of course not. It’s absolutely impossible. Let’s be clear: we did not come up with these sanctions. Our international partners did,” Medvedev said. Western countries have imposed wide-ranging sanctions on Russia since its annexation of the Crimean peninsula in March, targeting banks, oil producers and defense companies. In response, Russia has imposed retaliatory measures such as banning imports of European and U.S. fruit and vegetables.

Medvedev said the country would overcome the sanctions and believed they would be lifted in the near future. But they had “no doubt” damaged relations. He said he understood former Soviet countries’ concerns over Ukraine. But he felt that the “foundations international relations” were being undermined by the punishing sanctions. The position was “destructive” and “stupid”, he said. Medvedev expressed dismay at U.S. President Barack Obama’s speech before the UN General Assembly in which he labeled Russia a key threat, second only to the deadly Ebola virus and ahead of the terrorist threat posed by Islamic State. “I don’t want to dignify it with a response. It’s sad, it’s like some kind of mental aberration. We need to come back to a normal position, and only after that we can elaborate on how we are going to elaborate our positions in the future,” he said. He said the country hadn’t closed its doors to anyone however.

Make that a month.

• New US Price Tag for War Against ISIS: $40 Billion a Year (Fiscal Times)

With the war against ISIS off to a rocky start, there are signs that the Obama administration is getting ready to up the ante substantially on weaponry, manpower and aid to allies – at a cost of an additional $30 billion to $40 billion a year. Earlier, Gordon Adams, a military analyst at American University, told The Fiscal Times that the mission to stop ISIS will cost $15 billion to $20 billion annually, based on his “back of the envelope” calculations. Other analysts have made similar forecasts. But based on soundings of the defense establishment, Adams said Thursday that the Defense Department would almost certainly request funding of twice that level later this year.

The estimated $30 billion to $40 billion of new spending would come on top of the Pentagon’s $496 billion fiscal 2015 operating budget for personnel and contractors and the roughly $58.6 billion in an “Overseas Contingency Operation” fund that is used to finance U.S. war operations in the Middle East. The OCO, as it is known, has paid for the protracted U.S. military engagement in the Middle East with borrowing that adds to the long-term U.S. debt. If Adams’ projections are correct, then the OCO would total as much as $80 billion to $90 billion in the coming year.

“Welcome to the diminishing returns of the global economy. They’ve been there all along, but none previously were sufficiently vivid or horrifying as ebola.”

• Real Life is Not Spin Art (Jim Kunstler)

The authorities keep emphasizing that the nurse who caught ebola from Thomas Eric Duncan was sealed in her haz-mat suit the whole time she cared for the poor fellow and blah blah nobody knows how she could possibly catch the darn thing…. But the newspapers and cable news networks are not asking: What about all the people, ordinary civilians, that this nurse was consorting with off-work, after she took off her haz-mat suit and, let’s say, at some point stopped by the Kroger Store’s fabulous steam table display of take-out goodies behind the helpful and reassuring sneeze-guard on her way back home? It sounds like a new Netflix drama – The Fatal Mac and Cheese.

If one more person in that chain of circumstance falls ill, Rick Perry will have to ring-fence Dallas faster than you can say Guadalupe Hidalgo and then we’ll be off to the quarantine races in America. It will be interesting to see who’s shorting the airline stocks a few hours from now. I’ve got to pass through Dulles airport tomorrow myself, and then two more foreign hubs after that, and return to freakin’ Newark International at the end of the week when a fullblown ebola panic may be underway. For the moment, I’m in Washington for a conference on population and immigration. Believe it or not there are some people who want to have an honest national conversation about these issues amid all the disingenuous chatter about “dreamers” emanating from the Oval Office in this miserable era of politics-as-spin-art. And along comes the galvanizing event of a really serious disease to finally force the issue. Nothing concentrates a nation’s attention like the specter of the people next door bleeding out through their ears and noses.

Welcome to the diminishing returns of the global economy. They’ve been there all along, but none previously were sufficiently vivid or horrifying as ebola. The Chinese FoxConn workers throwing themselves out the factory windows in despair just seemed like some kind of fraternity prank in comparison. Now something has got loose from the Heart of Darkness like the hissing beastie that burst out of John Hurt’s ribcage in Alien and water-skied out of the sick bay into the bowels of the cargo ship Nostromo. Sometimes a metaphor is just a figure of speech and sometimes it’s liable to set your hair on fire.

Farrell’s still on his climate and population quest.

• ‘Star Trek’ Time Capsule 2047 Launches As Earth Burns (Paul B. Farrell)

One very special “Star Trek: The Next Generation” episode haunts me. From stardate 45944.1: “The Inner Light” gives us a brief glance at the star-crossed future of two civilizations. One boldly exploring new worlds. The other leaving behind a brief snapshot of its mysterious death. A bold metaphor for our own planet, in the near future, perhaps 2047? The facts: The U.S.S. Enterprise is on a research mission, completing a magnetic survey of the Parvenium system when it encounters a probe floating in space. Suddenly a telepathic energy bolt drops Capt. Jean-Luc Picard on the deck, unconscious. He wakes up on a strange planet. Dazed, recovering from a fever as “Kamin.” He cannot recognize his wife. Friends think he’s delusional, mumbling about being a starship captain. Time passes. He gradually adapts to this new reality on this far-off world. Memories of his prior life slowly fade. He falls in love with his wife again, raises a family, his children give him grandchildren. He lives the quiet, peaceful life he never imagined in his space travels.

The planet’s natural resources gradually disappear as temperatures rise. Water gets scarce. Desert lands replace forests and rich farmlands. Food supplies depleted. The planet is dying. Near the end, he stands alone, a wide brimmed hat shielding his eyes from the blinding sun, watching the launch of a rocket, soaring into the clouds, contrails disappearing into the heavens, carrying the final record of a great civilization on a once-rich planet. Suddenly the probe powers off. Picard wakes up on the floor of the Enterprise bridge. Only a few minutes had passed. Back in command. Engines power up. They accelerate to warp, continuing on their mission, boldly going where no one has gone before. Picard is left with long memories of a simpler life on a planet that vanished thousands of years earlier. Alone in his quarters, Picard begins playing the flute retrieved from within the drifting space probe. A haunting melody fills his ship … time and space fade to black.

A metaphor for Earth? Perhaps, but which one? We live with 7.3 billion people today. By 2047 the United Nations estimates the population will rocket to 10 billion, with everyone competing with America’s 400 million capitalists for ever-scarcer resources. Yes, huge odds against us, with the rest of the world outnumbering us 22 to 1. Every nation, every society, everyone fighting for their own version of the American Dream, in an unsustainable lifestyle war that will require the resources of not one but six planets. An impossible quandary in a world where population demographics – the bubble of all bubbles – becomes the force driving all other bubbles, economic, political, cultural. The ultimate force driving us in an accelerating trajectory into an unsustainable reality on a planet that can never feed 10 billion people.

No native species left soon.

• UK Waterways Face ‘Invasional Meltdown’ From European Organisms (BBC)

Scientists are warning that an army of species from Turkey and Ukraine is poised to invade Britain’s waterways. One organism, the quagga mussel, was discovered in a river near London just weeks ago. At least 10 others are established in the Netherlands and there is a “critical risk” of them coming here. Researchers are also concerned that invaders, including the killer shrimp, will rapidly spread and devastate native species. The research has been published in the Journal of Applied Ecology. In the study, the team from the University of Cambridge looked at 23 invasive species that originate from the waters of the Black, Azov and Caspian seas. They believe these creatures have spread across Europe in recent years because of canal construction that has helped them move outside their native range.

At least 14 of the species are now well established in the Rhine estuary and in Dutch ports. Four, including the bloody red shrimp, have recently crossed the Channel and established themselves here. Others are likely to follow. According to the authors, Britain faces an “invasional meltdown”. “I think we are at a tipping point,” said Dr David Aldridge, the report’s co-author. “We’ve been watching species heading our way from the Ponto-Caspian region for the past 20 years or so. They are all building up in the Rhine system just over the ocean. “We think that particularly now that the quagga mussel has just arrived, we are about to have a big meltdown.”

Well, obviously. The more hosts a virus has to replicate in, the more mutations.

• Ebola Outbreak Boosts Odds of Mutation Helping It Spread (Bloomberg)

The Ebola virus circulating in West Africa is already different from previous strains. While scientists don’t fully understand what the changes mean, some are concerned that alterations in the virus that occur as that pathogen continues to evolve could pose new dangers. Researchers have identified more than 300 new viral mutations in the latest strain of Ebola, according to research published in the journal Science last month. They are rushing to investigate if this strain of the disease produces higher virus levels — which could increase its infectiousness. So far, there is no scientific data to indicate that. The risk, though, is that the longer the epidemic continues, the greater the chance that the virus could change in a way that makes it more transmissible between humans, making it harder to stop, said Charles Chiu, an infectious disease physician who studies Ebola at the University of California at San Francisco.

“If the outbreak continues for a prolonged period of time or it becomes endemic, it may mutate into a form that is more virulent,” said Chiu. “It is really hard to predict.” Viruses such as Ebola, whose genomes are made from ribonucleic acid, are constantly mutating. Some mutations are good for the virus and some are bad for the virus, said Ian Mackay, a virologist at the University of Queensland. It’s the ones that are good for the virus that tend to stick around. “Viruses don’t think. They make mutations that are good for them,” he said. “If it helps the virus spread or replicate faster it will be around more.” “It is a numbers game, the more cases you have the more likely there are going to be mutations that could change the virus” in a significant way, said David Sanders, a professor of biological sciences at Purdue University who studies Ebola. “The more it persists, the more likely we are going to be thrown a curve.”

Scared yet? What’s with the protocol?

• Second Health Care Worker Tests Positive For Ebola In Texas (CNBC)

A second health care worker has tested positive for Ebola in the U.S., the Texas Department of Health said on Wednesday. The person, who was employed at Texas Health Presbyterian Hospital, was among those who took care of Thomas Eric Duncan after he was diagnosed with Ebola. “Health officials have interviewed the latest patient to quickly identify any contacts or potential exposures, and those people will be monitored,” the Texas Department of Health said in a statement. “The type of monitoring depends on the nature of their interactions and the potential they were exposed to the virus.”

And counting.

• WHO Sees 10,000 Ebola Cases a Week in West Africa by Dec. 1 (Bloomberg)

The number of new Ebola cases in three West African nations may jump to between 5,000 and 10,000 a week by Dec. 1 as the deadly viral infection spreads, the World Health Organization said. The outbreak is still expanding geographically in Guinea, Sierra Leone and Liberia and accelerating in capital cities, Bruce Aylward, the WHO’s assistant director-general in charge of the Ebola response, said in a briefing with reporters in Geneva. There have been about 1,000 new cases a week for the past three to four weeks and the virus is killing at least 70% of those it infects, he said. “Any sense that the great effort that’s been kicked off over the last couple of months is already starting to see an impact, that would be really, really premature,” Aylward said. “The virus is still moving geographically and still escalating in capitals, and that’s what concerns me.”

The WHO’s forecast shows the magnitude of the task facing governments and aid groups as they try to bring the worst-ever Ebola outbreak under control. More than 8,900 people have been infected with Ebola in the three countries, with more than 4,400 deaths, the WHO said. The effects of the epidemic have rippled outward in recent weeks, adding to concern that Ebola may spread in the U.S. and Europe. The first two cases of Ebola being contracted outside Africa occurred, with health workers in Madrid and Dallas falling ill after caring for infected patients. The U.S. and the U.K. began screening some airline passengers on arrival in the past few days. [..] To bring the outbreak under control, there needs to be a common operational plan among all aid groups and governments, Aylward said. That means having people in every county or district responsible for burials, finding infected people and tracing who they’ve been in contact with, and isolating those who are ill and managing their care, he said. “Those pieces are not systematically in place,” he said.